Eliminating the requirement of obtaining personal guarantees for business loans unless a waiver is granted will be the main focus of a comment letter to the NCUA from NACUSO General Counsel Guy Messick.
At the NCUA board's March meeting, the regulator passed a proposed regulation eliminating four of the ten regulatory relief items provided to well-capitalized and well-run credit unions as defined under NCUA Regulations Part 742. Messick said if the four items are eliminated, the Reg Flex qualified CUs will have to follow the fixed asset rule, the requirement to stress test their securities, remove the discretionary control of investments and obtain personal guarantees for business loans unless a waiver is granted.
Messick said the elimination of the exemption for personal guarantees "is only supported by evidence that business loans have caused significant losses in some credit unions."
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"While I am sure that is the case, there is no evidence as to whether the losses sustained would have been mitigated or eliminated by personal guarantees. If a small business goes bad, the owner usually has exhausted his own funds as well," Messick wrote on NACUSO's Web site.
Many "extraordinarily good loans to strong companies" could not be made as banks have the flexibility to offer loans without personal guarantees," Messick said, adding the time it takes to get a waiver can be a deal breaker.
"I question how many regional directors will be inclined to grant any waiver requests in this economy no matter how strong the deal," Messick wrote.
Messick is seeking feedback on the waiver elimination piece as he readies a comment letter to submit to the NCUA. More details can be found at www.nacuso.org.
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